Growth, inflation and labour market all easing
Australian agricultural commodity prices have continued to unwind, posting a second month of lower prices as measured by NAB’s Rural Commodities Index. This comes against a backdrop of continued excellent seasonal conditions, but elevated input costs and rapidly rising interest rates to control global inflation.
Our index was off 1.8% in August, following a revised 8.1% decline in July – the largest in the history of our index from 2010. However, commodity prices had enjoyed rapid growth for the preceding two years and stood at record levels in June.
Input costs remain elevated, but we see ongoing signs that they have stabilised, at least for now. That said, our fertiliser index increased 7.5% in August, following three months of declining prices.
Seasonal conditions remain generally very supportive, with most major growing regions experiencing above average rainfall and soil moisture. The Bureau of Meteorology remains on La Nina alert – indicating a roughly 70% chance of La Nina forming this spring. Four of the seven surveyed models point to La Nina forming. If this occurs, it will be the third La Nina in a row, an extremely rare event and a further challenge for global agricultural growing conditions (although presenting further upside in Australia).
The RBA continues to rapidly raise interest rates. The cash rate target currently stands a 2.35%, up from 0.1% at the state of the year. We see the cash rate reaching 2.85% by the end of the year. The AUD fell against the USD through August, as mounting global growth concerns and risk-off sentiment boosted the greenback. We see the AUD closing out 2022 at around 68 US cents – roughly where it stands now.
For further details, see the Rural commodities wrap August 2022
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